Included in this issue: LSE consults on changes to the AIM Rules for Nominated Advisers; ACCA new report investigates corporate governance; European Commission EU state aid approval granted for EMI plans and more... 

Equity Capital Markets 

LSE consults on changes to the AIM Rules for Nominated Advisers

The London Stock Exchange (LSE) has published a consultation on proposed changes to the AIM Rules for Nominated Advisers (Nomads). Proposed amendments focus on:

• the eligibility criteria for Nomads (Rule 2);
• Nomad obligations to notify the LSE of matters which may affect its operation, role or the performance of its Nomad services (new Rule 12);
• providing further clarity and substance regarding the range of Nomad supervisory tools available to the LSE (new Rule 27);
• the supervision of qualified executives (new Rule 27(c));
• clarifying when the LSE may place a Nomad under moratorium on acting for further AIM companies ("moved" Rule 31). 

Responses should be submitted on or before 25 May 2018. 

FCA reviewing irredeemable preference shares

The Financial Conduct Authority (FCA) has published a "Dear CEO" letter which states that it is currently reviewing the prevailing market for certain fixed income shares, particularly those described as being perpetual, irredeemable or in some other way that suggests permanence.

The FCA wants to ensure investors have access to the information that they require to properly assess the risks and rewards attaching to such shares and sets out a suggested list of what that information might look like.

The letter highlights that listed companies will need to consider whether any intention to cancel or otherwise retire a class of irredeemable shares, or similar shares, at a price based on factors other than the prevailing market price, or their company's deliberation on any such intention, constitutes inside information under the EU Market Abuse Regulation. 

The UK Private Equity IPO Report

The BVCA and PWC have published a report examining the track record of private equity backed IPOs for the period from 1 January 2009 to 31 December 2017. The report looks at a number of metrics including the use of proceeds, pricing and market performance.

The performance numbers reveal that private equity-backed IPOs are trading on average 43.9% higher than their offer price for the period from IPO to 31 December 2017, compared to non-private equity backed IPOs in the same period which are trading at an average of 26.6% higher.

Takeovers 

Decision requiring King to make Rule 9 offer for Rangers upheld

In Panel on Takeovers and Mergers v King, the Inner House of the Court of Session has upheld the decision of the Outer House requiring David King to make a mandatory offer for all the shares in Rangers not already owned by him or his connected parties at a price of 20 pence per share.

King had been required by the Takeover Appeal Board to make the offer by 12 April 2017 but failed to do so, resulting in the Panel commencing proceedings under s.955 of the Companies Act 2006 seeking an order to require King to comply with its ruling, the first time that the Panel had used these statutory powers to enforce a judgment. The judgment of the Inner House therefore further emphasises the unwillingness of the courts to intervene in matters over which the Panel has jurisdiction, unless there are exceptional circumstances.

On 29 March, Laird Investments, a company owned by Mr King's family trust announced a firm intention to make the offer. However, such announcement did not contain a "cash confirmation" statement as required by Rule 2.7(d). The offer document was not published within 28 days of this announcement and a further communication from Rangers indicates that, at the Panel's behest, steps are being taken to move the offeror's cash from South Africa to the UK in order to enable a Code-compliant cash confirmation statement to be made in an offer document as soon as possible.

Revised notification thresholds for mergers in certain national security sectors confirmed

As trailed in the last edition of Corporate Finance News, the government has confirmed amendments to the UK merger control thresholds for mergers in sectors impacting national security, namely:

• military or dual-use goods which are subject to export control;
• quantum technology; and
• computing processing units.

Drafts of the two statutory instruments were published in March 2018:

• The Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018
• The Enterprise Act 2002 (Turnover Test) (Amendment) Order 2018

For these sectors only, the 25% "share of supply" threshold is amended so that it can be met solely by the activities of the target and the alternative "target turnover" threshold is reduced to £1m (from £70m).

The purpose of these amendments is to allow the UK government to intervene in smaller mergers in these sectors which might give rise to national security implications.

The revised thresholds come into force on 11 June 2018. There are no changes to the thresholds for mergers in other industry sectors.

Corporate Governance 

ACCA new report investigates corporate governance

The Association of Chartered Certified Accountants (ACCA) has published a report: "Tenets of good corporate governance". The report sets out key issues for companies to think about when considering their long-term business model and strategy. It identifies five themes that are recurring in the corporate governance debate:

• the relationship between companies and society;
• diversity and balance;
• enabling an effective board;
• executive remuneration; and
• gatekeepers of corporate governance.

Updated QCA Corporate Governance Code published

The Quoted Companies Alliance (QCA) has published a revised version of its corporate governance code. For further details see our Governance and Compliance update.

One in ten FTSE 350 companies fall short on gender diversity targets

The Investment Association (IA) has highlighted 14 companies in the FTSE 100 for, among other things, having all-male executive committees. Companies whose statistics highlight low levels of diversity in the strata of their executive committees and direct reports have also been highlighted and asked what steps they are taking to move towards the targets set out in the Hampton-Alexander Review.

The IA and Hampton-Alexander Review have also written to 11 FTSE 250 companies with all-male boards and a further ten who chose not to report their gender diversity data to the Review.

The IA is calling on businesses to take "swift action" on the issue of gender diversity arguing that diverse companies "typically outperform their less diverse peers and make better long-term decisions".

Company Law

BEIS updates paper on the state of UK business incubators and accelerators

The Department of Business, Energy and Industrial Strategy has updated its 2017 research paper to include an updated directory of UK business incubators and accelerators. The report, initially published in April 2017, explores the scale and distribution of incubators and accelerators, both geographically and sectorally.

Key findings in the report include:

• there are currently 205 incubators, 163 accelerators, 11 pre-accelerators, seven virtual accelerators and four virtual incubators active in the UK;
• while all incubators provide businesses with office or work space, accelerator programmes place more emphasis on direct funding, with the majority offering some form of financial support; and
• the majority of accelerators and incubators have either a broad focus on digital technology or no sectoral preference. Where a sectoral preference exists, incubators are much more likely to focus on businesses active in science-based areas, such as health and life sciences, than accelerators.

Bank of England reforms SONIA interest rate benchmark ahead of LIBOR being phased out (think about references to LIBOR in your agreements)

In preparation for LIBOR being phased out in 2021, the sterling overnight index average (SONIA), which is a widely used interest rate benchmark and the reference rate for sterling overnight indexed swaps, has been reformed by the Bank of England. There is a move to transition to using SONIA across sterling markets, instead of LIBOR, over the next few years due to concerns about the sustainability of LIBOR beyond 2021.

Updated Private Equity Reporting Group (PERG) Guidance 2018

The Private Equity Reporting Group has published an updated version of its guidance on good practice reporting by private equity portfolio companies. The guidance highlights the following:

• Discussing past performance is an inherent part of presenting financial statements but should include forward-looking information.
• Risks should not be considered in isolation as this tends to provide a static, boiler plate discussion.
• Reporting should link together strategy, risk and KPIs coherently whilst telling a story.
• As the regulatory and public reporting landscape evolves to embrace wider stakeholder areas of focus, the importance of disclosures for employee matters, human rights and gender reporting have ever increasing focus.
• Transparency of ownership is a significant theme in how stakeholders assess businesses that they work with.

Examples provided in the guidance set out elements of good practice in relation to the specific issues disclosed above.

Employee Incentives

European Commission EU state aid approval granted for EMI plans

Further to the issue of the tax treatment of enterprise management incentives (EMI) plans trailed in our Employee Incentives update, the European Commission has now confirmed that it has granted state aid approval in relation to them. The previous state aid approval for EMI plans lapsed on 6 April 2018.

It is now clear that EMI options granted prior to 7 April 2018 and after 15 May 2018 will, subject to the usual requirements, qualify to be tax-advantaged EMI options. However, it remains unclear whether the state aid approval will be back-dated to 7 April in order to ensure that EMI options granted in the period from 7 April 2018 to 15 May 2018 will also qualify for EMI tax treatment.  We are awaiting confirmation on this point from HMRC/HM Treasury. However, the European Commission has stated that the approval expires on 6 April 2023, which would strongly suggest that the approval commenced on 6 April 2018 (as it is normally valid for 5 years).

It is also unclear whether the European Commission required any variations to the EMI regime as part of the approval process. Again, we are waiting for confirmation on this from HMRC/HM Treasury.

In respect of the status of EMI plans post-Brexit, it is expected that the latest European Commission decision will automatically become UK domestic law under the European Union (Withdrawal) Bill.

M&A Trends

Spike in appetite for corporate divestments helps drive uptick in M&A activity

EY has released its 2018 Global Corporate Divestment Study produced in association with Mergermarket. Of note is that the number of executives planning to complete a divestment has doubled from last year (43% to 87%), illustrating that this growth strategy has climbed the list of corporate priorities. Key findings include:

• 74% of executives say their divestments were directly influenced by the evolving technological landscape, up from 55% in 2017.
• 50% say the need to fund new technology investments will make them more likely to divest, using the proceeds to improve operating efficiency and address changing customer needs.
• 56% of executives admit they held on to assets longer than they should have.
• 80% highlight tax policy changes as one of the most significant geopolitical shifts that may affect plans to divest.